Back in February 2012, the Obama Administration asked Congress to reform the current reimbursement formula for federal government contractor executives. Specifically, President Obama sought to cap the executive reimbursement at the same level as what the government pays its own executives – $200,000 per executive. Although last year’s request may have fallen on deaf ears, more than a year later, debate over reimbursement for executive compensation remains a hot topic.

The White House is once again pushing for lower contractor compensation caps. According to the Office of Management and Budget's newest blog post, the Obama Administration will ask Congress to tie the federal government contractor executive reimbursement limit to the president's annual salary, which is currently $400,000. OMB stated that this proposal “provides a reasonable level compensation for high value Federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs."

The Obama Administration understands that while the proposed limit saves taxpayers’ money, all contractor skills are not created equal and there may be appropriate reasons for exceeding the limit. Accordingly, the proposed new plan provides an exemption for allowing additional reimbursement when specialized skills must be utilized to support missions. Further, there would be no cap on what federal contractors could pay their own executives. Rather, the only restriction would be on what the government could reimburse federal government contractor executives.

Although the prior proposal failed to be made into law, there is still support for this issue in Congress – especially given the government’s current financial constraints. However, critics of the proposal remain on both sides. On one hand, organizations like the American Federation of Government Employees argue that this proposed cap does not do enough. Others, like the Professional Services Council, argue that if implemented, federal contractors will lose their ability to attract top talent and the government will ultimately suffer as a result. Only time will tell if the White House can claim success on this issue or if it will need to try yet again to put a cap on this reimbursement issue.

Last week, the Office of Management and Budget (“OMB”) announced that President Obama is working to breathe life back into a proposal to end federal contractor executive overpayment. According to the OMB’s blog post, the Obama administration will be asking Congress to reform the current reimbursement formula for contractor executives. The proposal will not limit how much contractors can pay their top five executives. Rather, it aims to limit the amount the government can reimburse contractors for executive salaries. Specifically, the proposal seeks to cap the government’s reimbursement at the same level as what it pays its own executives – $200,000 per.

Back in the 1990s, Congress tied the levels of pay given to contractor executives to the salaries of the nation’s top private executives, as opposed to government executives. As private sector salaries soared, so did those of contractor executives, something that did not go unnoticed. Receiving support from senators on both sides of the political spectrum, an amendment to the 2012 Defense Authorization Bill capped the reimbursement of salaries for some contracts with the Department of Defense. The Obama administration now seeks to extend the provisions across all government agencies as part of its Campaign to Cut Waste.

While the Obama administration believes that ending executive overpayment will benefit all taxpayers, certain taxpayers disagree. On the same day OMB made its announcement, the Professional Services Council (“PSC”) publicly opposed the measure. PSC stated that the proposal would negatively impact small businesses and inhibit the ability of the government and industry to attract top talent to work on federal contracts.

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